The Accounting Standards Committee has published a draft of a new standard, KSR “Investments in Real Estate and Intangible Assets”. The document aims to clarify the rules for recognition, measurement, and presentation of real estate investments and intangible assets in financial statements.
Why was the new standard developed?
In practice, for many years there have been inconsistencies in the classification, revenue presentation, and measurement of investment properties. Similar issues applied to intangible assets, especially protection rights and licenses. The new standard seeks to harmonize accounting practices and adapt Polish regulations to market needs.
Key assumptions of the KSR standard
1. Definition of investment property
Investment property includes land, buildings, and premises:
- held to generate economic benefits from rental,
- or from appreciation in value over time,
- and not used in the entity’s core operating activities.
2. Classification and change of use
The standard specifies how to classify properties when their use changes – e.g., transfer from fixed assets to investments and vice versa. Such reclassifications require appropriate accounting entries and disclosure in the notes to the financial statements.
3. Measurement
- at initial recognition – at purchase price or production cost.
- at the balance sheet date – generally at historical cost less accumulated depreciation and impairment losses.
- the standard allows the use of fair value if the entity has adopted such a policy and can reliably determine the valuation.
4. Intangible assets
The draft also addresses intangible assets, including:
- protection rights (patents, trademarks),
- licenses, concessions,
- know-how.
It emphasizes the need to verify useful life, apply appropriate amortization rules, and conduct impairment tests.
5. Presentation and disclosures
Entities will be required to disclose in their financial statements, among others:
- criteria for classifying investment properties,
- adopted measurement policies,
- information on changes in the use of properties,
- details of impairment charges.
6. Presentation of income from investment properties
The draft standard also clarifies how to present income generated from properties classified as investments.
The classification of revenues and expenses from benefits derived from investment properties or intangible assets depends on the entity’s business model:
- If properties or intangibles are leased or otherwise made available to other parties, and such leasing/provision constitutes the core business activity of the entity – i.e., the business model is based exclusively on deriving benefits from rental/provision or appreciation in value – the related revenues should be presented as revenues from core operating activities.
- In other cases, revenues from such assets should be presented as other operating income.
This approach ensures that the presentation of revenues reflects the actual nature of the entity’s business – distinguishing between cases where rental is incidental and those where it is central to the business model.
Implications for businesses
The KSR draft represents a step toward greater transparency in financial reporting and closer alignment of Polish accounting standards with international practice. For companies, it means the need for more detailed analysis of owned real estate and intangible assets, as well as adapting accounting policies to the new requirements.
The standard is currently under consultation – its final form may still change. However, businesses should already familiarize themselves with the draft and assess its potential impact on their financial reporting.
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